What Should Investors Do If the Broker is Bankrupt or Runaway?

As we all know, the global financial turmoil is unsettling with various issues happening from time to time. Today, after the wanton development of the financial industry, the domestic attitude towards the financial industry, as well as forex industry, has gradually changed from indulgent to strict, under the combined effect of various internal and external factors. Mutual gold associations, central banks, the Ministry of Public Security, and foreign exchange bureaus have issued risk warnings that policy risks of foreign exchange platforms are constantly increasing.
    Under this premise, many investors can't help worrying about whether there will be problems on their own platform and what to do if something goes wrong. Although we cannot control the profit and loss, it is worse if we lose the principals.

Today, let’s talk about how to avoid this awkward situation, and what should we do if it has already happened.

Bankruptcy or Runaway
    There are mainly two situations for foreign exchange platforms, if there is something wrong, one is running away, and the other is bankruptcy. Some people may think that either way, the platform is out of business or I cannot get my money. In fact, there is still a big difference between them. The bankruptcy of the platform may be due to poor management or may be caused by sudden market conditions, and platforms themselves are not necessarily problematic which maybe good ones. So, if the platform is bankrupt, investors are still likely to get their funds in some cases. However, if it is runaway, there is no doubt that the platform is informal, and the hope of getting back funds is very slim.

Bankruptcy
    Let's start with bankruptcy. If investors have carefully inspected before depositing funds and have chosen a formal and strictly supervised platform, there is still hope to get back the funds, even though the platform fail for some unpredictable reasons.

Compensation schemes for investors

Among the supervisions departments of various countries, many of them attach great importance to the protection of investors. Therefore, there are many regulatory regulations that include compensation plans, for example FCA of UK, NFA of US, Cysec of Cyprus, etc..
    However, having a compensation plan does not necessarily mean that it could be successfully implemented. Among them, the compensation plan of FCA is the most reliable, which makes it the most valuable one. According to FCA, the maximum compensation that each investor can receive is 50,000 euros, which is transparent, fair and treats customers of any country without distinction. The British FOS accepts complaints from mainland Chinese investors. In the famous black swan incident of Swiss franc, Alpari UK went bankrupt and many Chinese investors received compensation from FCA.

Nevertheless, to get other regulatory compensations is far less smooth. For example, NFA of US pays priority to American customers, while Chinese customers can hardly get the actual compensation. When Bailey, the 12-year old foreign exchange filed for bankruptcy, Chinese customers missed the compensation period priority to American customers. Another example is Cysec of Cyprus, although it requires all registered investment companies to participate in the Investor Compensation Fund (ICF), providing compensation up to 20,000 Euros, it has never been successfully implemented, cause Cyprus has no perfect penalties for brokers who fail to perform, which makes its compensation plan a dead letter. The notorious IronFX event is a typical case, the victims of which failed to get their due compensation.

Therefore, choosing a right platform is very important. There is no need to worry about your funds being looted even if the company fails, if you choose a platform regulated by the FCA (it must be true FCA supervision and be alert to brand companies).

How to get FSCS compensation?
    To apply for FSCS compensation, firstly the platform must first be unable to pay its debts and declare bankruptcy. Before an investor applies for compensation, the FSCS must confirm and declare that the company has defaulted and entered bankruptcy proceedings.

If encounter such situation, you can first contact the economist (phone, email, etc.) to see if you can get paid. If not, contact the financial complaint agency FOS for help. At the same time, you should also contact FSCS, a public service agency which is free for individual claims.

The processing of compensation claims by the FSCS is related to the complexity of compensation, so it will take a relatively long time, 6months top.

Overly favorable policies
    Not every investor can recover their own funds from the failed platform, even if they can, it will be very difficult. Therefore, identifying platforms that may bankrupt is also an important way to avoid loss. One of the major reasons for the failure of the platform is excessively favorable marketing policies. The platform needs to be profitable, and the result of excessively offering profits to investors will only leads to its own demise. Therefore, if a platform proposes special preferential policies (such as IronFX bonus), investors may need to be alert.

Unscrupulous platforms that run away
    If the platform bankrupted, there is still a glimmer of hope for investors. While, if the unscrupulous platforms just run away, what investors can do is to try their fortune except for calling the police.

But it does not mean that we can do nothing but to leave it to the fate. On the contrary, we must try everything we can to increase the possibility of successful rights protection.

First of all, act fast. It needs a process to run away, which is the last opportunity for investors to save themselves.

Before the platforms flee, there are always some signs, such as difficulty in withdrawing funds (including delaying and restrictions on withdrawals, etc.), and banning investor accounts for no reason. Repeated delays on the platform generally mean that funds are being transferred. In this case, you must withdraw your money as soon as possible. If you can’t get the fund back in a normal way, contact the platforms and warn them that you have called the police. Do not believe any of their excuses or the lie that the police will confiscate all property and no one will get the money.
    Secondly, you must have evidence complete. If the platform has already run, and unfortunately your money has not been withdrawn money, it is necessary to obtain as much evidence as possible, such as a screenshot of the deposit, or a printed deposit details, if possible, collect the IP address of its server and so on. When encountering such thing, the police are the last resort for investors, so we must do our best to cooperate with the investigation.
    Thirdly, unite "friendly forces". We all know that there is strength in numbers, and it is actually the same on the road to defending rights. When the platform run away, the victim must be more than one. Together, there will be more clues and make it more convenient for the police. Contacting various media is also helpful to rights protection. In addition, in order to reduce the workload of the police and to get results earlier, report to the police no matter how small the loss is.

In the end, again, the choice of platform really matters. There are lots of regulated platforms in the foreign exchange market. Do not get lost in the slogans of "break-even interest" and "high commission". Once encountered a black platform, the road to rights protection will be very tough. Even if it does happens, be calm and trust the police, so as to avoid making more damages by falling into the new traps of "representative rights" and "agent compensation" due to panic.